Decisions – Noreena Hertz

Decisions – Noreena Hertz 

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1. Decisions decisions….

We make 10,000 decisions every day, 227 just about food. Whilst it doesn’t matter if we order a cappuccino or a latte, getting a high-stakes decision right – a decision about our health, wealth, business – really does.

“Yet it’s surprising how little we think about the process of decision-making, how little we think about how we think.”

I realised this first hand when I got very sick a few years ago. Despite having spent the bulk of my career advising key decision makers – CEOs, presidents, prime ministers – on economics and business decisions, when confronted with having to decide which doctor to trust and which medical treatment to agree to, I realised I hadn’t a straightforward decision-­making process to follow, a set of steps to follow whatever the decision at hand.

So in parallel to donning and re-donning paper hospital gowns, in between MRI, CT scans and spinal taps, I dove into the academic literature on decision ­making. Not just in my field, economics, but also in neuroscience, psychology, sociology, information science, political science, and history.

And when I got well, which I thankfully did, I incorporated these new insights into my reflections on my own advisory career. These are just a few of the lessons I learned.

“Be careful about blindly trusting experts – they get things wrong all too frequently.”

Studies have shown that doctors misdiagnose one time in six. That of the one in twelve patients who die in hospital because of misdiagnosis, a half would have survived had the diagnosis been right. Whilst an estimated 50,000 deaths each year in the US and Canada could have been prevented if the real cause of illness had been correctly identified.

Or just think of recent global events, from the rise of the Islamic State to Russia’s invasion of Ukraine, from the recently plummeting oil price to the 2008 financial crisis – by and large missed by experts.

Indeed, in a seminal study that looked at 82,000 expert predictions over a sixteen-year period -predictions made by government officials, journalists, historians, political scientists and economists -experts did no better than a monkey randomly throwing a dart at a board.

“I’m not saying never trust experts, I am one after all, I’m saying don’t blindly trust us and do acknowledge that some of us are far better than others. Do your own research so that you can property interrogate our assumptions and analysis.”

Don’t necessarily go with the majority opinion, and do listen to the contrarians amongst us.

Look too at track records. Experts who’ve got it right in the past a number of times are more likely to get it right in the future. Whilst if your expert has made some howlers, you want, at the least to know, so that you can interrogate their current assessment especially carefully.

And do ditch the overconfident expert who’s advising you, fast. Those are the ones most likely to underperform. Studies of radiologists, for example, reveal that those who make the most misdiagnoses are also those most confident in their diagnostic prowess.

Whilst the more famous a forecaster, the more overblown it turns out, typically, are their forecasts.

“I recognise there is a challenge here. Our instinct is to defer to those labelled expert.”

In a 2009 experiment carried out at Emory University, a group of adults were asked to make a decision whilst contemplating an expert’s claims (in this case a financial expert). An fMRI scanner gauged their brain activity as they did so.

The results were extraordinary: in the majority of cases when confronted with the expert, it was as if the independent decision-making parts of their brains pretty much switched off. They simply ceded their power to decide to the expert.

2. Becoming a hunter-gatherer

“Yet if we are to control our own destinies, we have to keep our brains switched on. In part, this is about keeping our eyes wide open and becoming smarter information hunter-gatherers.”

This includes explicitly valuing insights borne from experience – what Nobel Prize winning economist Friedrich Hayek talked about as ‘local knowledge’ – the dispersed knowledge of those on the ground.

A leading investment bank learned the value of tapping into direct experience when they asked an intern in their London office to write a report describing the media habits of teenagers.

The report had clear insights on newspapers (‘teenagers cannot be bothered to read pages and pages of text while they could watch the news summarised on the Internet or on TV’), pop-up ads
(‘extremely annoying and pointless’), music (‘very reluctant to pay for it’) and everything in between.

The executive director of the bank’s European media team said of the report that it was ‘one of the clearest and most thought-provoking insights we have seen.’

Flooded with six times the normal level of calls and emails from clients and CEOs, he commented, ‘It is far and away the most significant reaction to a note we’ve ever been involved in and is certainly going to go down as one of the most widely read notes we’ve ever published’.

The paper was even discussed at the Allen & Co. conference, a working social for media moguls and techie billionaires like Rupert Murdoch and Bill Gates.

So who was this young person who had become ‘the world’s most famous intern since Monica Lewinsky’? A Harvard MBA in between his first and second year? A law graduate from Oxford hoping to make the transition into investment banking? No – he was Matthew Robson, a fifteen year-old at Kidbrooke comprehensive school in Greenwich.

A teenager whose mom had secured him a summer placement after the family dog Rudy made friends with the wife of one of the bank’s media analysts in a local park. A teenager who researched this paper by asking his friends – fellow teenagers. There were no textbooks, no footnotes, no references. Just conversations and observations. He simply reported on the mood of a generation that he was part of.

“Being a smarter information hunter-gatherer is about widening one’s net in other ways too. Such as deploying technology to gain new insights.”

A few years back, I put together a team of leading social scientists and computer scientists to run a real­time experiment – could we predict winners and losers on the UK’s talent contest The X Factor by listening in on the hundreds of thousands of tweets and Facebook and You Tube posts that were issued by viewers around the show’s ‘voting window’?

We developed a computer program to do this, and a proprietary algorithm. And we did better than good; we accurately predicted who would finish in the bottom two, twelve out of fourteen times. If we’d been betting on our predictions we’d have beaten the bookies.

Other studies have shown how digital listening-in can deliver an entirely new dimension of predictive power.

“There is research that suggests that if we track the mood of the public on Twitter we may have an advantage when it comes to correctly predicting stock market movements.”

There is also research that points to success in using Twitter data for making movie box office predictions.

Whilst the United Nation’s Global Pulse Project’s two-year study of half a million biogs, forums and news sites revealed that conversations online foreshadowed the unemployment rate and yielded advance data up to three months ahead of the official stats.

“If you can’t build your own data analytics model, don’t worry. There is always Google Trends. For our yearnings, hopes, fears and desires are not only expressed by what we say but by what it is we search for.”

Forecasting models which attempt to predict current economic data (such as unemployment or consumer confidence) before the government publishes such statistics, have been shown to be 5-20% more accurate if they include information from Google Trend keyword searches.

Whilst a study carried out by the Bank of England revealed that if you want to gauge the true state of the real estate market, you’d be better off looking at Google Trends than relying on official statistics.

The researchers found that by monitoring search trends for ‘estate agent’ on Google and looking to see if the volume of search for this term was rising or falling, they were able to predict with more accuracy the direction of the housing market than if they had used data from traditional expert sources – the Home Builders Federation or the Royal Institution of Chartered Surveyors.

A similar study in the US suggested that a spike in the search term ‘foreclosure’ foreshadowed troubles in the housing market before official sources realised there was a growing problem.

“It makes sense that what we search for can foreshadow what then happens. But what makes Google Trends particularly useful is just how quickly it identifies what we are concerned about and how these concerns are evolving.”

With most official data subject to a significant time-­lag – in the UK for example, house price indicators are only released monthly by the Land Registry – the real­time insights we can get from looking at how search volumes today differ from the past provides us with much more timely and relevant information.

And these real-time insights can be damn specific: one study the Bank of England drew on in their report showed that for every percentage point increase in Google searches for the term ‘estate agents’ in the US, there were an additional sale of 67,700 houses the following quarter.

No wonder, David Cameron, the British prime minster (I’m told by the person who set this up for him), now monitors unemployment figures on his iPad via Google Trends rather than waiting for official data to come out from the Office for National Statistics.

Unemployment figures come out only every month in the UK: Google Trends offers up what’s happening right now, in a form that’s easy for all of us to access.

But how’s this for a cautionary tale? On 6 October 2011 there was panic at No. 1 0 Downing Street. That morning, the British prime minister’s inner circle had been shocked to discover that there’d been a huge spike in searches for ‘jobs’ overnight. It was only later that day that they realised that this was actually down to the death the previous afternoon of former Apple CEO Steve ‘Jobs’.

“If we’re to maximise the opportunities technology now affords us as decision makers, we will thus need, as ever, to keep our eyes wide open and brains firmly switched on and to property interrogate any new information it delivers.”

But as we take on greater responsibility for information hunter-gathering ourselves, there’s more we need to be mindful of. We need to be careful that we are both focusing on the right information and also processing it properly. We cannot take either for granted.

3. Who is your Challenger in Chief?

“Rather than seeking out information dispassionately, our propensity is to focus on information that most supports what we already believe or hope to prevail.”

Indeed, when we find confirming data, we get a dopamine rush similar to the one we get if we eat chocolate, have sex or fall in love.

I know how great it felt when I stumbled across information during my medical journey that implied I didn’t need any serious treatment at all. But it’s often disaffirming information, information that challenges our existing opinions, that yields the greatest insights. The dangerous allure of the information we want to hear is something we need to be more vigilant about, in the medical consulting room and beyond.

“We need to be aware too of our natural-born optimism, for that may get in the way of our decision-making.”

Studies reveal that when we are given information that is better than we hoped or expected – are told, for example, that the risk of being burgled is only 10% when we thought it was 30% – we revise our beliefs accordingly. But if it’s worse, we tend to ignore this new information.

It’s one reason why smokers often persist with smoking despite the overwhelming evidence that it’s bad for them. If their unconscious belief is that they won’t get lung cancer, for every warning from an anti-smoking campaigner, their brain is giving a lot more weight to that story of the ninety-nine-year-old lady who smokes fifty cigarettes a day but is still going strong.

“We need to acknowledge our inability to properly process challenging news and actively push ourselves to hear the bad as well as the good. Critically, we must also push ourselves to contemplate diverse, dissenting views. For dissent, it turns out, has a significant value.”

When group members are actively encouraged to openly express divergent opinions, they not only share more information, they consider it more systematically and in a more balanced and less biased way.

When people engage with those with different opinions and views from their own, they become much more capable of properly interrogating critical assumptions and identifying creative alternatives.

Whilst studies comparing the problem-solving abilities of groups in which dissenting views are voiced with groups in which they are not, find that dissent tends to be a better precondition for reaching the right solution than consensus.

“Innovation is not only about the creation of ideas, it is also about their destruction. We need to cast our nets wider and test our ideas and hopes against points of view that differ from our own, and be willing to reject them where need be.”

Yet how many leaders actively seek out and encourage views alien and at odds to their own? All too few.

President Lyndon Johnson notoriously discouraged dissent, with many historians now believing that this played a significant role in the decision to escalate US military operations in Vietnam.

Excessive group-think is now recognised to have underpinned President Kennedy’s disastrous authorisation of a CIA-backed landing at Cuba’s Bay of Pigs. Former employees of the now defunct Lehman Brothers have talked about how voicing dissent there was considered a career-breaker.

Whilst Yale economics professor and former Federal Bank of New York Economics Advisory Panel member Robert Shiller explained that when it came to warning about the bubbles he believed were developing in the stock and housing markets just before the financial crisis, he did so only ‘quietly’ because: ‘Deviating too far from consensus leaves one feeling potentially ostracized from the group with the risk that one may be terminated.’

“Is this the feeling the ‘clubby’ environment in your boardroom is inadvertently engendering? Or are you actively signalling that you want to hear views that are different and diverse and in opposition to your own? Hiring people of different gender, ethnicity and age, so they bring their different experiences and points of view to bear? And actively encouraging your own ideas and positions to be challenged?”

Eric Schmidt, the executive chairman of Google, has talked about how he actively seeks out in meetings people with a dissenting opinion. Abraham Lincoln’s renowned ‘team of rivals’ comprised people whose intellect he respected and who were confident enough to take issue with him when they disagreed with his point of view.

Stuart Roden, co-fund manager of Lansdowne Partners’ flagship fund, one of the world’s largest hedge funds, tells me he sees one of his primary roles as being the person who challenges his staff to consider how they could be wrong, and then assess how this might impact on their decision-making.

Who in your organisation (or home life) serves as your Challenger in Chief? Interrogating the choices you are considering making? Making you consider the uncontemplated, the unimaginable and that which contradicts or refutes your position? And are you listening to him or her?

“Are you witting, too, to take on the Challenger in Chief role yourself when need be? Are you willing to be perceived as the difficult patient, the annoying colleague, the questioning client, the sceptical board member yourself? If we’re to be a smart information hunter-gatherer, there will be occasions when we will need to do this.”

4. Why waiters get tipped more when the sun shines

But making smart decisions isn’t only about challenging others. We need, too, to be willing to turn the spotlight on ourselves, on our own thinking patterns, irrationalities, distortions, biases. We need to be prepared to challenge ourselves.

Take our emotions, it turns out they affect the choices we make. More than we might realise.

“If we’re anxious, we are more risk averse.”

Stress makes us prone to tunnel vision, less likely to take in all the information we need, more prone to fall back on our own shorthand, however unpalatable. Both doctors and judges, when stressed, have been found to revert to their unconscious racial stereotyping biases.

“If we’re happy, that also affects our decision-making. When happy, we take more risks, are more trusting, more generous. It’s why waiters get tipped more when the sun is shining, or why a country’s stock market tends to rise off the back of a national team’s win at football.”

It’s not that we can’t have emotions. In fact, studies of people whose brains have been damaged at the interface between emotions and decision-making, reveal that such people typically suffer decisions paralysis, unable to make any choices at all.

It’s that we need to acknowledge to ourselves what it is we are feeling. So, if we’re waiting for medical rest results, say, it’s about noting that we are feeling worried. The act of mindfully acknowledging our feelings, it turns out, serves as an ’emotional thermostat’ that recalibrates our decision-making.

Our physical state is also essential to monitor. For it’s not just coincidence that disastrous decisions relating to the Three Mile Island and Chernobyl nuclear disasters and the Exxon Valdez oil spill happened in the early hours of the morning.

Investigations into each found that sleep deprivation played a critical role. Whilst investigations into both the Challenger space shuttle and Air France Flight 447 tragedies highlighted lack of sleep as a significant factor.

“If you’ve ever pulled an all-nighter, you’ll know the symptoms of sleep deprivation all too well: difficulty concentrating, inability to think quickly and efficiently, memory lapses.”

But did you know that if you go twenty-four hours without sleep or spend a week sleeping only four or five hours a night, it’s as if you’re making decisions drunk?

Or that brain scans of people who have not had enough sleep reveal that the part of our brain that relates to us overestimating our chances of success is more active after losing a night’s sleep, whilst the part of our brain that plays a key role in assessing risk effectively switches off when we’re overtired – when we’re overtired it’s as if our measured voice of caution falls asleep, whilst the gung-ho manic part of our personality stays awake.

“We need to be rested when we’ve big decisions to make, and if this isn’t possible, we need to make sure we have people in our circle and support group who can point out to us any irrational sleep­-deprived thinking on our part, people who themselves are not sleep-deprived.”

It’s not just sleep deprivation we need to worry about. Are you the type who skips breakfast? If so, you might want to rethink that.

Fascinating research in Israel on why judges decided to grant prisoners parole, revealed that the main determinant wasn’t the applicant’s gender, ethnicity, or even the type of crime, but whether the judge had recently eaten! If you went before the judge just before they’d had their mid-morning snack. Disaster. Zero per cent chance of getting parole. Immediately after, 65%. Just before lunch. Disaster again. Only a 10% chance of getting parole. Immediately after, 65%.

And if you’re feeling amorous, well you probably want to wait before you make that important call.

When Canadian male undergraduates were given one of two images to look at – either a Victoria’s Secret model or a neutral object, a rock – and then asked to make a financial decision, the guys who’d been looking at the Victoria’s Secret model made significantly worse financial decisions than those who’d been looking at a rock.

“The physical state of the information we receive also affects our decisions.”

Take colour. It turns out it plays a surprisingly significant role in the way we evaluate situations.

Men rate women as more attractive if they see their photographs set against red backgrounds rather than white, grey, blue or green ones. Waitresses are tipped more when they wear red. Football referees are more likely to give penalties to teams wearing black strips than to those in other colours.

Whilst Doron Kliger at the University of Haifa has discovered that when investors are given pertinent information about a stock to read set against a red background, they focus on the potential for the investment to fall in value and therefore view it as an unattractive option – making them less likely to want to buy it.

Whereas if they read the same information on a green background, they focus on the investment’s potential for gain, and therefore consider it a more appealing buy.

“Language – the choice of words, images and metaphors used – also has a huge impact on the judgement calls we make.”

Beauty companies have at times caught me out in this regard. In my bathroom cabinet are products that ‘correct’ dark spots, ‘fight’ ageing and can infuse my eyes with ‘youth’. Really, though.

More worryingly, when two groups of psychiatrists were told the same story of a young man who had attacked a train conductor, the only difference being the attacker’s name, they provided different diagnoses depending on what they believed him to be called.

When the psychiatrists thought the attacker was called ‘Matthew’, they were more likely to diagnose him with schizophrenia. When they thought he was called ‘Wayne’, they were more likely to diagnose him with a drug problem.

“Whilst during the dotcom bubble, many firms changed their names to take advantage of the euphoria surrounding ‘hot dotcom’ stocks.”

This included firms that had nothing to do with the Internet. For example, North American Natural Inc, who were in the business of producing educational literature, changed their name to and saw their share price increase from $1 to $17.

In another startling example of the influence a name can have, RLD Enterprises, a potato chip manufacturer, changed its name to and experienced a huge jump in the value of its shares, even though at the time of the name change go-rachels did not even have a website!

Incredibly, just by changing their names, these companies experienced large increases in their stock prices without any underlying business change.

“Time-poor investors were heavily influenced by the tremendous optimism for everything associated with the Internet at the time and used the name as a short cut on the basis of which to make important financial decisions.”


Interrogating experts and seeking out those with direct experience; challenging others and also ourselves; becoming a smarter information hunter-gatherer; noting our own emotional and physical states; being mindful of language, colour and context; recognising those thinking errors and traps we might fall into.

None of these steps are easy. All of these steps take time. Which is why we should save this checklist for those high-stakes decisions that actually do matter. But then do use it.

“These lessons cannot guarantee success. But they can definitely increase your odds.”

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